Microstrategy, Bitcoin And A Drunken Saylor

July 28, 2021

“MicroStrategy Acquires Additional Bitcoins and Now Holds Over 105,000 Bitcoins in Total” – June 22, 2021

Michael Saylor, CEO of Microstrategy ($MSTR), has completely mortgaged the fate of Microstrategy on Bitcoin. Starting in August 2020, Saylor used $250 million of shareholder cash to buy Bitcoin. Since then MSTR has issued $2.2 billion in debt – $1.7 billion in converts and a $500 million debenture – to buy $2.2 billion more in Bitcoin. Through June 21, 2021, the date of its latest Bitcoin purchase announcement, MSTR owns 105,085 Bitcoins at an average cost of $26,083 – at least if you believe Saylor’s disclosure. As of today the Bitcoin holding is worth $3.97 billion. Through the end of it Q1, based on a 10-Q disclosure, the cumulative impairment expense of MSTR’s foray into Bitcoin is $264.8 million. Perhaps not the best use of shareholder capital.

I question the integrity of MSTR’s 10-Q disclosure because Saylor has a track record of accounting fraud going back to the dot.com bubble era, when MSTR was founded. By way of background MSTR’s CEO, Michael Saylor, during the dot.com bubble was investigated by the SEC for inflating MSTR’s earnings and improper revenue recognition. Saylor settled the allegations without admitting or denying any wrongdoing. Fast-forward to now, MSTR has had four CFOs over last two years. I’m sure if I really dug through the footnotes of MSTR’s latest 10-Q, I would find more red flags.

When I was trading junk bonds on Wall Street in the 1990’s, one of our big clients was a white shoe Boston Brahmin. He used to say regarding the lowest rated junk bonds, “when you lie down with dogs you wake up with fleas.” MSTR’s issuer credit rating by S&P is triple-C and Michael Saylor has fleas.

Since peaking at $1272 (closing price) at the height the Bitcoin price bubble in early February, MSTR is down 50.6% through today. MSTR has always been a momentum-chasing retail daytrader favorite and Bitcoin is an effigy of speculative excess. Because Saylor has leveraged the Company’s balance sheet to an extreme degree to buy Bitcoin, MSTR is Bitcoin on steroids. If you are looking for a leveraged vehicle to short Bitcoin, MSTR is the perfect security.

Turning to the “Drunken Saylor” referenced in the title to this post, on June 22nd “Doomberg” wrote a must-read essay on Saylor and his Bitcoin experiment at MSTR using shareholder and bondholder money. Here’s a snippet:

Saylor has fully converted MicroStrategy into a bitcoin holding company at this point. He continuously makes wildly outrageous statements about the value of bitcoin, none of which are protected by safe harbor laws. These statements have a direct impact on the value of MicroStrategy’s stock, and by extension Saylor’s personal wealth. He encourages people to risk their entire life savings and follow him into the bitcoin abyss. It is truly a grotesque situation.


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